A tax audit is when the Internal Revenue Service decides to take a closer look at your tax return and verify that your income and deductions are accurate. Sometimes, the IRS selects a person, a business or organization to audit because some discrepancies have been found or federal tax laws may have been violated. However, often, audits are selected using a variety of methods.
They may be randomly selected using computer screening based on a statistical formula or when documents that an individual submitted are not accurate. In some cases, an IRS audit could occur when the taxpayer’s information that has been reported involves one or more issues and requires an examination or review to determine if there are errors or inaccuracies.
Getting a notice of an audit from the IRS can be stressful and intimidating. If you are facing an IRS audit, our experienced Arizona tax attorneys can help you navigate complex procedural issues. We help our clients pay the lowest possible taxes and fees or have their audits dismissed.
Types of IRS Tax Audits
There are four types of IRS audits:
Correspondence audit: This is the most common and simplest of IRS audits. In such cases, the IRS will send you a letter in the mail requesting answers to specific questions or needed clarifications related to your tax return. You may have to correct your tax return, which could result in paying more money or receiving a refund for an accounting error. If you have receipts or other evidence to back up your claims, you should send it to the IRS to help make your case. Make sure you keep copies of all your correspondence.
Office audit: If the IRS has further questions about your return that go beyond the normal correspondence letter, you will get an invitation for an in-person audit meeting at one of their local offices. These audits are typically completed within a day even though they are more involved. You will also be given time to provide any additional information the IRS requests.
Field audit: A field audit is the most serious situation if the issue could not be resolved through correspondence or office audits. In such cases, the IRS will visit your place of business and inspect to verify if your workplace, employees and other business expenses are legitimate.
Random reviews: In addition to these traditional audits, you may also be subject to random review. In such cases, the IRS will simply scan your tax return for inaccuracies. You won’t get a letter if there are no red flags.
Steps to Take if You Are Being Audited
If you get an audit letter from the IRS, the first step to remain calm and not panic. There are several steps you would be well advised to take under such circumstances. First, examine your records to determine whether the IRS wants to audit your entire income tax return or just a part of it. If the issue involves documenting a tax deduction or a credit, be sure to provide copies of those relevant documents to the IRS. Send copies and keep the original documents.
If the IRS is asking for documents that you don’t have any more in your possession, try to reconstruct them. Provide worksheets to the IRS, which clearly show how you arrived at the tax amounts that are in question. If the IRS is auditing only a part of the tax return, provide only the records that are relevant to that part. Don’t provide or volunteer information that has not been requested. If you are not sure exactly what the IRS is asking for, don’t hesitate to ask questions to clarify the audit request. Consult an experienced tax attorney who can help you navigate what can be a complex process.
IRS Audit Red Flags
It is important to remember that only a small number of individual tax returns are audited each year. If a tax return differs significantly from what is the norm, there is a higher probability that it will be audited. Here are some of the most common reasons why tax returns are tagged for an audit:
- Incomplete tax returns, which have missing information or numerical errors.
- Unreported income or failure to report taxable income that has been received.
- Suspiciously high or low income.
- Significant changes in income, which are very different from the years before.
- A high number of charitable contributions without evidence of contribution.
- High itemized deductions that are questionable.
- Discrepancies between state and federal tax returns.
A tax return will not be flagged for such discrepancies as soon as they are found. When such tax returns come to the attention of the IRS, they will be turned over to an actual person within the IRS for examination and review. If that person determines that a tax return was suspicious, it is likely to result in an audit.
Do I Have Rights During an IRS Audit?
As a taxpayer, you do have rights during an IRS audit process and afterward, including the right to:
- Being treated fairly and professionally by the IRS.
- Privacy and confidentiality about tax information.
- Know why you are being audited and why the IRS is requesting particular information.
- Know how the IRS will use the specific information that they have requested and you have provided.
- Get legal representation.
- Appeal the decision within the IRS and before the courts.
How a Tax Attorney Can Help
If you or your business is being audited, the experienced Arizona tax attorneys at the Pew Law Center PLLC can help you better understand the process, your rights during the process and your right to an appeal. We take a comprehensive look at our client’s situation and come up with the best possible solutions to help secure their financial future. If you are overwhelmed by tax debt, we will explain all your options including filing for bankruptcy to help you get a fresh start.
We will work with you to make sure that you can put your tax issues behind you. Don’t try to face the IRS on your own. Call us at (480) 745-1770 for a no-cost, no-obligation consultation.